On June 5, the Beijing Municipal Public Security Bureau’s Legal Affairs Office’s official account “Faqingyuan” published an article detailing the Beijing Municipal Public Security Bureau’s innovative “Beijing Model” - disposing of the virtual currencies involved in the case through Hong Kong’s compliant licensed exchanges, achieving a closed loop from chain to off-chain, which is both legal and compliant, and efficient and safe.
According to the article of "Faqingyuan", the Legal Affairs Corps of Beijing Municipal Public Security Bureau and Beijing Equity Exchange have explored a new channel: the public security organs first entrust the virtual currency involved in the case to Beijing Equity Exchange for testing, receiving and handing over, and then sell it publicly through Hong Kong compliant licensed exchanges (such as OSL Exchange and HashKey Pro). After the transaction is completed, the funds will go through the national foreign exchange management approval procedures, and will eventually be settled into the special account of the public security organs involved in the case and turned over to the state treasury. So far, Beijing Equity Exchange has disposed of a total of 5.468 million pieces of property involved in the case.
According to information shared by Beijing lawyer Liu Yang (public account: Zhongben Lawyer. Recommended!), there are several key details behind this link:
First, the First Research Institute of the Ministry of Public Security provided technical support throughout the process, and recorded and videotaped the handling process to ensure safety and compliance. This work was specifically completed by a wholly-owned subsidiary, Beijing Zhongtianfeng Security Protection Technology Co., Ltd.
Second, the banks that cooperated with Zhongtianfeng Company to deal with the case are from the CITIC Bank system, including the Beijing branch of CITIC Bank, as well as the Hong Kong branch of CITIC Bank, Hong Kong trust institutions and non-bank financial institutions. The reason why non-bank institutions such as trust institutions need to participate is that banks can only conduct inter-bank business transactions and cannot directly open an account at the Hong Kong Stock Exchange to carry out disposal operations as an institution. Zhongtianfeng Company and CITIC Bank have jointly developed the "Virtual Currency Disposal and Return Clearing System", which has been deployed and launched on the public security intranet, and has been reported to the People's Bank of China and the State Administration of Foreign Exchange for filing and approval.
Third, the cooperation between Beijing Municipal Public Security Bureau and Beijing Equity Exchange is not an isolated case. For example, Suzhou Municipal Public Security Bureau cooperates with Suzhou Bitda Digital Asset Service Center, a local state-owned enterprise. This shows that the model has strong replicability.
This "Beijing model" solves the old problem that the virtual currencies involved in the case cannot be directly converted into cash in China, and also responds to the risks and challenges of cross-border disposal in judicial practice. The conversion is completed through a compliant Hong Kong licensed exchange, coupled with strict regulatory approval, so that the virtual currencies involved in the case can be "cleanly" returned from the chain to the off-chain and smoothly enter the national treasury, which is remarkable both in terms of law and regulation.
However, if you read the operation chain of the "Beijing Model" carefully, you will find a core link: Hong Kong's compliant licensed exchanges are the key link in this chain and the most trusted disposal scenario.
So the question is: Why is Hong Kong an ideal destination for this type of cross-border disposal?
Previously, Lawyer Honglin discussed this topic in detail in (Mankiw Lawyer | Hong Kong Cryptocurrency Exchange, the biggest demand is actually in the mainland), and friends who are interested can read further.
In general, the local user base of Hong Kong’s virtual asset market is actually very limited. Although Hong Kong’s regulatory authorities have long established a virtual asset trading license system and allow compliant exchanges to provide services to professional investors and even retail customers, the local market has been unable to support a complete trading ecosystem due to the difficulty in opening bank accounts, insufficient awareness of virtual assets, and limited user scale.
In theory, Hong Kong licenses can be open to global users, but the reality is that international users are basically firmly bound to platforms such as Coinbase and Binance. It is conceivable how difficult it is for the Hong Kong Stock Exchange to attract global users. Instead of fighting in the global market, it is better to give full play to the advantages of "institutional interface" and serve those "atypical markets" well - especially mainland China.
The opportunity comes from mainland China's firm attitude towards virtual currency: it will not and cannot fully open up virtual currency investment and public trading markets for retail investors.
The core reason behind this is not just that the virtual currency market is "high risk" or "technologically immature", but rather a higher-level institutional arrangement - China's foreign exchange management system. As long as the capital account remains non-convertible, tools such as crypto assets that naturally carry the attributes of cross-border capital flows cannot be released at will. This is not something that any department can decide on its own, but a hard institutional red line.
Therefore, instead of trying to grab retail investors, a truly smart Hong Kong Stock Exchange should study the opportunities in the "institutional mezzanine": judicial disposal and cross-border wealth management are the most typical scenarios.
These are precisely the biggest market opportunities for Hong Kong cryptocurrency exchanges.
In recent years, virtual currencies have appeared more and more frequently in criminal cases and civil and commercial disputes. The division of property by court decisions and the virtual currencies seized by the police all require a closed-loop compliant exchange from "on-chain to off-chain" to complete, and Hong Kong happens to be able to play such a role. It is close to the Chinese judicial system and has a mature licensing system, which can both comply with regulations and solve practical problems.
Due to work reasons, Lawyer Honglin has participated in many projects involving the judicial disposal of virtual currencies, and has learned about the pilot documents of several provincial public security departments on the judicial disposal of cryptocurrencies involved. Without involving sensitive information, Lawyer Honglin can give a few examples to help everyone better understand the professionalism and complexity of this mechanism.
For example, when the public security organs are handling the management of virtual currencies involved in the case, they are required to take measures such as signal interference to disconnect the network of the wallet involved in the case as soon as possible to prevent the suspect from transferring assets. The virtual currencies involved in the case must be transferred to qualified custodians to prevent others from secretly transferring funds through private keys or mnemonics.
During the disposal process, the public security organs also require that non-stable currencies be first converted into stable currencies, and then converted into cash using foreign legal currencies, and that complete transaction lists and receipts be retained to ensure that prices are fair, processes are traceable, and transactions are auditable.
For virtual currencies involved in overseas cases, it is necessary to entrust qualified overseas custodians or disposers to assist in completing the freezing and cashing out operations. These institutions must hold local financial regulatory licenses and meet my country's compliance requirements. They can only be designated for cooperation after verification by the Ministry of Public Security's cybersecurity department.
After the funds are converted into cash, similar to the Beijing model at the beginning of this news article, it is necessary to complete the international balance of payments declaration and restoration declaration at the central bank and the State Administration of Foreign Exchange before the funds can be entered into domestic accounts for foreign exchange settlement and disposal.
This full-process supervision system not only ensures the legality and compliance of judicial disposal, but also leaves sufficient traceability and security guarantees for future audits.
The existence of such internal rules not only demonstrates that the judicial authorities attach great importance to the disposal of virtual currencies, but also reflects the dual lines of defense of national financial security and data security. It also proves once again that the disposal of cryptocurrencies is not only a concern of the people in the currency circle, but also a systematic project at the national level.
The core hub of this project is Hong Kong.
To some extent, whether Hong Kong can become a global crypto-financial center is not a matter of technology or user volume, but whether it can continue to play the role of a "compliant intermediary" within the institutional boundaries of China. After all, the Beijing model has clearly told us that Hong Kong's role is indispensable in the legal and compliant judicial disposal and capital repatriation system.
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Author: Lawyer Liu Honglin